AIR T, INC. FORWARD-LOOKING STATEMENTS
This section entitled "Management's Discussion and Analysis of Financial
Condition and Results of Operations" ("MD&A") is intended to provide a reader of
our financial statements with a narrative from the perspective of management on
our financial condition, results of operations, liquidity, and certain other
factors that may affect our future results. The MD&A provides a narrative
analysis explaining the reasons for material changes in the Company's (i)
financial condition during the period from the most recent fiscal year-end,
March 31, 2022 , to and including December 31, 2022 and (ii) results of
operations during the current fiscal period(s) as compared to the corresponding
period(s) of the preceding fiscal year.
This Quarterly Report on Form 10-Q, including the MD&A, contains
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. These statements reflect our current views with
respect to future events and financial performance. The words "believe,"
"expect," "anticipate," "intend," "estimate," "forecast," "project," "should,"
"will," "continue" and similar expressions are intended to identify
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Any and all forecasts and projections in this
document are "forward looking statements" and are based on management's current
expectations or beliefs. From time to time, we may also provide oral and written
forward-looking statements in other materials we release to the public, such as
press releases, presentations to securities analysts or investors, or other
communications by us. Any or all of our forward-looking statements in this
report and in any public statements we make could be materially different from
actual results. Accordingly, we wish to caution investors that any
forward-looking statements made by or on behalf of us are subject to
uncertainties and other factors that could cause actual results to differ
materially from such statements.
We also wish to caution investors that other factors might in the future prove
to be important in affecting our results of operations. New factors emerge from
time to time; it is not possible for management to predict all of such factors,
nor can it assess the impact of each such factor on the business or the extent
to which any factor, or a combination of factors, may cause actual results to
differ materially from those contained in any forward-looking statements.
We undertake no obligation to update publicly or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
Our MD&A should be read in conjunction with the Consolidated Financial Statements and related Notes included in Item 1 of Part 1 of this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the fiscal year endedMarch 31, 2022 (including the information presented therein under Risk Factors), as well other publicly available information.
Overview
Air T, Inc. (the "Company," "Air T ," "we" or "us") is a holding company with a portfolio of operating businesses and financial assets. Our goal is to prudently and strategically diversifyAir T's earnings power and compound the growth in its free cash flow per share over time.
We currently operate in four industry segments:
•Overnight air cargo, which operates in the air express delivery services industry;
•Ground equipment sales, which manufactures and provides mobile deicers and other specialized equipment products to passenger and cargo airlines, airports, the military and industrial customers; •Commercial aircraft, engines and parts, which manages and leases aviation assets; supplies surplus and aftermarket commercial jet engine components; provides commercial aircraft disassembly/part-out services; commercial aircraft parts sales; procurement services and overhaul and repair services to airlines and, •Corporate and other, which acts as the capital allocator and resource for other consolidated businesses. Further, Corporate and other also comprises insignificant businesses and business interests that do not pertain to other reportable segments.
Each business segment has separate management teams and infrastructures that offer different products and services. We evaluate the performance of our business segments based on operating income and Adjusted EBITDA.
Results of Operations
Impacts from Geopolitical, Macroeconomic, and COVID-19 Challenges
We continue to be exposed to macroeconomic pressures as a result of the
lingering impacts of the COVID-19 pandemic, supply chain challenges, foreign
currency fluctuations, spikes in commodity prices and geopolitical challenges,
including the war in Eastern
27
--------------------------------------------------------------------------------COVID-19 and its impact on the current financial, economic and capital markets environment, and future developments in these and other areas present uncertainty and risk with respect to our financial condition and results of operations. Each of our businesses implemented measures to attempt to limit the impact of COVID-19 but we still experienced disruptions, and we experienced and continue to experience to a lesser degree a reduction in demand for commercial aircraft, jet engines and parts compared to historical periods. Our businesses may continue to generate reduced operating cash flow and may continue to operate at a loss from time to time during fiscal 2023. We expect that the impact of COVID-19 will continue to some extent. The fluidity of this situation precludes any prediction as to the ultimate adverse impact of COVID-19 on economic and market conditions, and, as a result, present material uncertainty and risk with respect to us and our results of operations. The Company believes the estimates and assumptions underlying the Company's condensed consolidated financial statements are reasonable and supportable based on the information available as ofDecember 31, 2022 ; however, uncertainty over the ultimate direct and indirect impact COVID-19 will have on the global economy generally, and the Company's businesses in particular, makes any estimates and assumptions as ofDecember 31, 2022 inherently less certain than they would be absent the current and potential impacts of COVID-19. The war inEastern Europe and related sanctions imposed onRussia and related actors and other macroeconomic factors have resulted in interest rate acceleration and inflation, including, but not limited to, a significant increase in the price of commodities. These factors may negatively impact our businesses at least in the short-term. The ultimate impact on our overall financial condition and operating results will depend on the currently unknowable duration and severity of these activities. We continue to evaluate the long-term impact that these may have on our business model, however there can be no assurance that the measures we have taken or will take will completely offset the negative impact.
Third Quarter Fiscal 2023 Compared to Third Quarter Fiscal 2022
Consolidated revenue for the three-month period ended
Following is a table detailing revenue by segment, net of intercompany during the three months endedDecember 31, 2022 compared to the same quarter in the prior fiscal year (in thousands): Three Months Ended December 31, Change 2022 2021 Overnight Air Cargo$ 21,831 $ 18,248 $ 3,583 19.6 % Ground Equipment Sales 16,147 15,232 915 6.0 % Commercial Jet Engines and Parts 21,736 11,392 10,344 90.8 % Corporate and Other 1,682 561 1,121 199.8 %$ 61,396 $ 45,433 $ 15,963 35.1 % Revenues from the air cargo segment for the three-month period endedDecember 31, 2022 increased by$3.6 million (19.6%) compared to the third quarter of the prior fiscal year. The increase was principally attributable to higher administrative fees, maintenance labor and pass-through revenues from FedEx. The ground equipment sales segment contributed approximately$16.1 million and$15.2 million to the Company's revenues for the three-month periods endedDecember 31, 2022 and 2021 respectively, representing a$0.9 million (6.0%) increase in the current quarter. The increase was primarily driven by the increase in part sales this quarter compared to prior year's comparable quarter as commercial and military customers require parts to perform maintenance on their trucks. AtDecember 31, 2022 , the ground equipment sales segment's order backlog was$12.5 million compared to$3.7 million atDecember 31, 2021 . The commercial jet engines and parts segment contributed$21.7 million of revenues in the quarter endedDecember 31, 2022 compared to$11.4 million in the comparable prior year quarter, which is an increase of$10.3 million (90.8%). The increase was primarily driven by higher component part sales across all companies within the segment in the current quarter compared to prior year comparable quarter. Revenues from the corporate and other segment for the three-month period endedDecember 31, 2022 increased by$1.1 million (199.8%) compared to the third quarter of the prior fiscal year. The increase was primarily attributable to the acquisitions mentioned in Note 2 of the Notes to Condensed Consolidated Financial Statements of this report. Following is a table detailing operating income (loss) by segment during the three months endedDecember 31, 2022 compared to the same quarter in the prior fiscal year (in thousands): 28 --------------------------------------------------------------------------------
Three Months Ended
December 31, Change
2022 2021
Overnight Air Cargo $ 1,009 $ 475 $ 534
Ground Equipment Sales 1,093 1,463 (370)
Commercial Jet Engines and Parts 733 336 397
Corporate and Other (2,700)
(2,249) (451)
$ 135 $ 25 $ 110
Consolidated operating income for the quarter ended December 31, 2022 was $0.1
million , compared to an operating income of $25.0 thousand in the comparable
quarter of the prior year.
The air cargo segment's operating income for the three-month period ended
The ground equipment sales segment's operating income for the quarter ended
The commercial jet engines and parts segment generated operating income of$0.7 million in the current-year quarter compared to operating income of$0.3 million in the prior-year quarter. The increase was primarily attributable to the increase in revenue mentioned above offset by an increase of$0.4 million in inventory write-down in the current quarter compared to the prior-year comparable quarter. The corporate and other segment's operating loss for the three-month period endedDecember 31, 2022 was$2.7 million compared to an operating loss of$2.2 million in the same quarter in the prior fiscal year. The increase was primarily attributable to the timing of bonus payments made compared to last year. Following is a table detailing non-operating income (expense) during the three months endedDecember 31, 2022 compared to the same quarter in the prior fiscal year (in thousands): Three Months Ended December 31, Change 2022 2021 Interest expense$ (2,204) $ (1,236) $ (968) Income from equity method investments 2,118
99 2,019
Other-than-temporary impairment loss on investments - (348) 348
Other (97) (11) (86)
$ (183) $ (1,496) $ 1,313
The Company had a net non-operating loss of $0.2 million during the quarter
ended December 31, 2022 , compared to net non-operating loss of $1.5 million in
the prior-year quarter. In the current-year quarter, the Company had higher
interest expense due to having more outstanding TruPs shares and more
indebtedness at Contrail compared to the prior-year quarter offset by an
increase in income from equity method investments, primarily driven by the
$1.8 million share of net income recognized from Insignia. See Note 9 of the
Notes to Condensed Consolidated Financial Statements of this report. In
addition, in the prior-year quarter, an impairment loss of $0.3 million was
recorded for CCI that did not recur in the current-year quarter.
During the three-month period ended December 31, 2022 , the Company recorded
global income tax benefit of $0.2 million at an effective tax rate ("ETR") of
325.0%. The Company records income taxes using an estimated annual effective tax
rate for interim reporting. The primary factors contributing to the difference
between the federal statutory rate of 21.0% and the Company's effective tax rate
for the three-month period ended December 31, 2022 were the change in valuation
allowance related to Delphax and other capital losses, the estimated benefit for
the exclusion of income for SAIC under Section 831(b), the foreign rate
differentials between the federal and foreign tax rates for Air T's ownership of
foreign operations in Puerto Rico , the Netherlands , and Singapore , and the
exclusion from the tax provision of the minority owned portion of the pretax
income of Contrail.
During the three-month period ended December 31, 2021 , the Company recorded $0.3
million in income tax benefit at an effective tax rate ("ETR") of 19.2%. The
primary factors contributing to the difference between the federal statutory
rate of 21.0% and the Company's effective tax rate for the three-month period
ended December 31, 2021 were the change in valuation allowance related to
29
--------------------------------------------------------------------------------Delphax, the estimated benefit for the exclusion of income for SAIC under Section 831(b), and the exclusion from the tax provision of the minority owned portion of the pretax income of Contrail.
First Nine Months of Fiscal 2023 Compared to First Nine Months of Fiscal 2022
Following is a table detailing revenue by segment (in thousands):
Nine Months Ended
December 31, Change
2022 2021
Overnight Air Cargo $ 64,464 $ 55,946 $ 8,518 15.2 %
Ground Equipment Sales 39,981 32,603 7,378 22.6 %
Commercial Jet Engines and Parts 63,577 35,902 27,675 77.1 %
Corporate and Other 4,924 1,189 3,735 314.1 %
$ 172,946 $ 125,640 $ 47,306 37.7 %
Revenues from the air cargo segment for the nine months ended December 31, 2022
increased by $8.5 million (15.2%) compared to the nine months ended December 31,
2021 . The increase was principally attributable to increased administrative fees
as well as higher pass-through revenue from FedEx as a result of increased
business activity.
The ground equipment sales segment contributed approximately $40.0 million and
$32.6 million to the Company's revenues for the nine-month periods ended
December 31, 2022 and 2021 respectively, representing a $7.4 million (22.6%)
increase in the current nine-month period. The increase was primarily driven by
increased pricing of truck units sold and higher parts and service revenue.
The commercial jet engines and parts segment contributed $63.6 million of
revenues in the nine months ended December 31, 2022 compared to $35.9 million in
the comparable prior year nine months. The increase was primarily driven by
higher component part sales across all companies within the segment and engine
sales at AirCo 1 that did not occur in the prior fiscal year.
Revenues from the corporate and other segment in the nine months ended
Following is a table detailing operating income (loss) by segment during the
nine months ended
Nine Months Ended
December 31, Change
2022 2021
Overnight Air Cargo $ 2,931 $ 2,063 $ 868
Ground Equipment Sales 3,122 2,929 193
Commercial Jet Engines and Parts 3,603 2,000 1,603
Corporate and Other (8,509) (6,268) (2,241)
$ 1,147 $ 724 $ 423
Consolidated operating income for the nine months ended December 31, 2022 was
$1.1 million compared to an operating income of $0.7 million for the comparable
nine months of the prior year.
Operating income for the air cargo segment for the nine months ended
The ground equipment sales segment operating income increased by$0.2 million to$3.1 million in the nine-month period endedDecember 31, 2022 versus the prior year comparable period. This increase was primarily attributable to the revenue increase noted above. The commercial jet engines and parts segment generated an operating income of$3.6 million in the current-year nine month period compared to an operating income of$2.0 million in the prior-year nine-month period. The change was primarily attributable to the increased component sales as well as engine sales at AirCo 1 as explained in the segment revenue discussion above. 30 -------------------------------------------------------------------------------- The corporate and other segment's operating loss increased by$2.2 million to$8.5 million from the prior-year loss of$6.3 million primarily driven by higher benefits cost and the timing of bonus payments compared to last year for the nine months endedDecember 31, 2022 . Following is a table detailing non-operating income (loss) during the nine months endedDecember 31, 2022 compared to the same nine months in the prior fiscal year (in thousands): Nine Months Ended December 31, Change 2022 2021 Interest expense$ (6,021) $ (3,341) $ (2,680) Income from equity method investments 2,917 197 2,720
Gain on forgiveness of Paycheck Protection Program ("PPP") loan
- 8,331 (8,331)
Other-than-temporary impairment loss on investments - (348) 348
Other (608) 1,329 $ (1,937)
$ (3,712) $ 6,168 $ (9,880)
The Company had a net non-operating loss of $3.7 million for the nine months
ended December 31, 2022 compared to a net non-operating income of $6.2 million
in the prior-year nine-month period. The decrease was primarily attributable to
the $8.3 million gain recognized on the SBA's forgiveness of the Company's PPP
loan in the prior year period which did not occur in the current period. In the
current year, the Company incurred $2.7 million higher interest expense due to
having more outstanding TruPs shares and more indebtedness at Contrail. In
addition, the Company recorded a $0.4 million unrealized loss due to fair value
adjustments on our marketable investments in the current year compared to prior
year's $0.3 million unrealized gain. The decrease was partially offset by $2.7
million higher net income from equity method investments in the current year
compared to the prior year, primarily driven by $1.8 million share of net income
from Insignia. See Note 9 of the Notes to Condensed Consolidated Financial
Statements of this report.
During the nine-month period ended December 31, 2022 , the Company recorded
global income tax benefit of $0.5 million at an effective tax rate of 20.9%. The
Company records income taxes using an estimated annual effective tax rate for
interim reporting. The primary factors contributing to the difference between
the federal statutory rate of 21.0% and the Company's effective tax rate for the
nine-month period ended December 31, 2022 were the change in valuation allowance
related to Delphax and other capital losses, the estimated benefit for the
exclusion of income for SAIC under Section 831(b), the foreign rate
differentials between the federal and foreign tax rates for Air T's ownership of
foreign operations in Puerto Rico , the Netherlands , and Singapore , and the
exclusion from the tax provision of the minority owned portion of the pretax
income of Contrail.
During the nine-month period ended December 31, 2021 , the Company recorded
$0.2 million in income tax benefit which resulted in an effective tax rate of
(3.6)%. The primary factors contributing to the difference between the federal
statutory rate of 21.0% and the Company's effective tax rate for the nine-month
period ended December 31, 2021 were the changes in valuation allowance related
to Delphax, the estimated benefit for the exclusion of income for SAIC under
Section 831(b), the exclusion from the tax provision of the minority owned
portion of the pretax income of Contrail, the exclusion from taxable income of
the PPP loan forgiveness income, as directed by the CARES Act enacted in 2020,
and any accrued interest forgiven as a part of that Act.
Critical Accounting Policies and Estimates
The Company's significant accounting policies are fully described in Note 1 to the condensed consolidated financial statements and in the notes to the consolidated financial statements included in the Company's Annual Report on Form 10-K for the year endedMarch 31, 2022 . The preparation of the Company's condensed consolidated financial statements in conformity with accounting principles generally accepted inthe United States requires the use of estimates and assumptions to determine certain assets, liabilities, revenues and expenses. Management bases these estimates and assumptions upon the best information available at the time of the estimates or assumptions. The Company's estimates and assumptions could change materially as conditions within and beyond our control change. Accordingly, actual results could differ materially from estimates. There were no significant changes to the Company's critical accounting policies and estimates during the three-months endedDecember 31, 2022 . Seasonality The ground equipment sales segment business has historically been seasonal, with the revenues and operating income typically being lower in the first and fourth fiscal quarters as commercial deicers are typically delivered prior to the winter season. Other segments have typically not experienced material seasonal trends. Supply Chain and Inflation 31
-------------------------------------------------------------------------------- The Company continues to monitor a wide range of health, safety, and regulatory matters related to the COVID-19 pandemic including its impact on our business operations. In particular, supply chain disruptions have impacted product availability and costs across all markets including the aviation industry in which our company operates. Additionally,the United States is experiencing workforce shortages and increasing inflation which has created a competitive wage environment. Thus far, the direct impact of these items on our businesses has not been material. However, ongoing or future disruptions to consumer demand, our supply chain, product pricing inflation, our ability to attract and retain employees, or our ability to procure products and fulfill orders, could negatively impact the Company's operations and financial results in a material manner. We continue to look for proactive ways to mitigate potential impacts of supply chain disruptions at our businesses.
Liquidity and Capital Resources
As ofDecember 31, 2022 , the Company held approximately$6.5 million in cash and cash equivalents and restricted cash,$1.3 million of which related to restricted cash collateralized held for three opportunity zone investments made by the Company - Air T OZ 1, LLC, Air T OZ 2, LLC, and Air T OZ 3, LLC (the "Opportunity Zone Funds"), each aMinnesota limited liability company and a subsidiary of the Company. The Company also held$1.5 million in restricted investments held as statutory reserve of SAIC. The Company has approximately$0.6 million of marketable securities and an aggregate of approximately$22.0 million in available funds under its lines of credit as ofDecember 31, 2022 . As ofDecember 31, 2022 , the Company's working capital amounted to$63.2 million , a decrease of$34.2 million compared toMarch 31, 2022 primarily driven by the increase in current portion of long-term debt as the revolving lines of credit atAir T with MBT and Contrail with ONB become due within a year. As mentioned in Note 12 of Notes to condensed Consolidated Financial Statements included under Part I, Item 1 of this report, onJune 9, 2022 , the Company,Jet Yard and MBT entered into Amendment No. 1 to Third Amended and Restated Credit Agreement ("Amendment") and a related Overline Note ("Overline Note") in the original principal amount of$5.0 million . The Amendment and Note memorialize an increase to the amount that may be drawn by the Company on the MBT revolving credit agreement from$17.0 million to$22.0 million . As ofDecember 31, 2022 , the unused commitment on the Overline Note and the MBT revolver was$5.0 million and$8.2 million , respectively. The total amount of borrowings under the facility as revised is now the Company's calculated borrowing base or$22.0 million . The borrowing base calculation methodology remains unchanged. As mentioned in Note 9 and Note 12 of Notes to Condensed Consolidated Financial Statements of this report, onSeptember 30, 2022 , the Company executed a promissory note payable to CCI for$2.0 million that bears interest at 10.00% per annum and matured onDecember 30, 2022 . The note may be prepaid at any time without penalty. The note is subordinate and junior to any and all indebtedness of the Company to MBT. As ofDecember 31, 2022 , this note has been repaid. As mentioned in Note 15 of Notes to Condensed Consolidated Financial Statements included under Part I, Item 1 of this Report on Form 10-Q, in 2016, Contrail entered into an Operating Agreement with the Seller providing for the put and call options with regard to the 21.0% non-controlling interest retained by the Seller. The Seller is the founder of Contrail and its current Chief Executive Officer. The Put/Call Option permits the Seller or the Company to requireContrail Aviation to purchase all of the Seller's equity membership interests inContrail Aviation commencing onJuly 18, 2021 . As of the date of this filing, neither the Seller nor the Company has indicated an intent to exercise the put and call options. If either side were to exercise the option, the Company anticipates that the price would approximate the fair value of the Contrail RNCI, as determined on the transaction date. The Company currently expects that it would fund any required payment from cash provided by operations. As mentioned in Note 15 of Notes to condensed Consolidated Financial Statements included under Part I, Item 1 of this report, onMay 5, 2021 , the Company formed an aircraft asset management business called CAM and an aircraft capital joint venture called CJVII. The venture focuses on acquiring commercial aircraft and jet engines for leasing, trading and disassembly. CJVII targets investments in current generation narrow-body aircraft and engines, building onContrail Aviation's origination and asset management expertise. CAM serves two separate and distinct functions: 1) to direct the sourcing, acquisition and management of aircraft assets owned by CJVII, and 2) to directly invest into CJVII alongside other institutional investment partners. CAM has an initial commitment to CJVII of approximately$53.0 million , which is comprised of an$8.0 million initial commitment from the Company and an approximately$45.0 million initial commitment from MRC. As ofDecember 31, 2022 , CAM's remaining capital commitments are approximately$0.7 million from the Company and$16.0 million from MRC. CJVII was initially capitalized with up to$408.0 million of equity from the Company and three institutional investor partners, consisting of$108.0 million in initial commitments and$300.0 million in upsize capacity, contingent on underwriting and transaction appeal. As of the date of this filing, certain institutional investors have gone into upsize capacity and$113.3 million of capital has been deployed to CJVII. The timing of the remaining capital commitment is not yet known at this time. The Contrail Credit Agreement contains affirmative and negative covenants, including covenants that restrict the ability of Contrail and its subsidiaries to, among other things, incur or guarantee indebtedness, incur liens, dispose of assets, engage in mergers and consolidations, make acquisitions or other investments, make changes in the nature of its business, and engage in transactions with 32 -------------------------------------------------------------------------------- affiliates. The Contrail Credit Agreement also contains quarterly financial covenants applicable to Contrail and its subsidiaries, including a minimum debt service coverage ratio of 1.25 to 1.0 and a minimum tangible net worth of$12.0 million . The Company is in compliance with such financial covenants as ofDecember 31, 2022 . However, management is forecasting that the Company will be in violation of the debt service coverage ratio during the twelve month period subsequent to the date of this filing, primarily because the first principal payment of its Term Note G becomes due inNovember 2023 . Non-compliance with a debt covenant that is not subsequently cured gives ONB the right to accelerate the maturity of the Contrail Credit Agreement and declare the entire amount of Contrail's outstanding debt at the time of non-compliance immediately due and payable and exercise its remedies with respect to the collateral that secures the debt. Should ONB accelerate the maturity of the Contrail Credit Agreement, the Company would not have sufficient cash on hand or available liquidity to repay the outstanding debt in the event of default. In response to these conditions, Contrail management is currently in discussion with ONB to obtain a waiver to its financial covenants, to seek to revise the financing documents and/or to secure alternative financing to avoid an event of non-compliance. However, these plans have not been finalized and there is no assurance that management will be able to execute these plans. The obligations of Contrail under the Contrail Credit Agreement are also guaranteed by the Company, up to a maximum of$1.6 million , plus costs of collection. The Company is not liable for any other assets or liabilities of Contrail and there are no cross-default provisions with respect to Contrail's debt in any of the Company's debt agreements with other lenders. If Contrail were to cease operations, management believes the Company, along with the rest of its businesses, will continue to operate, given the maximum guarantee of Contrail's obligations of$1.6 million , plus costs of collection. The revolving lines of credit atAir T with MBT and Contrail with ONB have a due date or expire within the next twelve months. We are currently seeking to refinance these obligations prior to their respective maturity dates; however, there is no assurance that we will be able to execute this refinancing or, if we are able to refinance these obligations, that the terms of such refinancing would be as favorable as the terms of our existing credit facility. As a result, management believes it is probable that the cash on hand and current financings, net cash provided by operations from its remaining operating segments, together with amounts available under our current revolving lines of credit, as amended, will be sufficient to meet its obligations as they become due in the ordinary course of business for at least 12 months following the date these financial statements are issued. Management has concluded that the plans are probable of being achieved to alleviate substantial doubt about the Company's ability to continue as a going concern.
Cash Flows
Following is a table of changes in cash flow for the nine months ended
Nine
Months Ended
2022 2021
Net Cash Used in Operating Activities $ (3,815) $ (19,690)
Net Cash Used in Investing Activities (3,090) (19,546)
Net Cash Provided by Financing Activities 4,866 29,079
Effect of foreign currency exchange rates on cash and cash equivalents
181 69
Net cash used in operating activities was$3.8 million for the nine-month period endedDecember 31, 2022 compared to net cash used in operating activities of$19.7 million in the prior year nine-month period, resulting in an overall decrease of$15.9 million period over period. The change in net cash used in operating activities was primarily driven by a net increase in cash provided by receivables of$9.3 million due to increased sales in the current period, receipt of ERC payments of$2.4 million , and higher payables and accrued expenses of$5.0 million , mostly attributable to timing of payroll and an increase in customer deposits received. In the current period, there was an additional purchase accounting adjustment related to the acquisition of GdW that increased our deferred tax liabilities by$2.4 million . See Note 2 of the Notes to Condensed Consolidated Financial Statements of this report. Those changes are offset by a$3.8 million net increase in cash used to purchase inventories at Contrail and AirCo in the current year. Net cash used in investing activities for the nine-month period endedDecember 31, 2022 was$3.1 million compared to net cash used in investing activities of$19.5 million in the prior-year period. The decrease in cash usage in investing activities was primarily driven by fewer investments in unconsolidated entities and no acquisition of assets in the current year, as compared to$13.4 million in the prior year. 33 -------------------------------------------------------------------------------- Net cash provided by financing activities for the nine-month period endedDecember 31, 2022 was$4.9 million compared to net cash provided by financing activities of$29.1 million in the prior-year period. The decrease was primarily driven by reduced proceeds from and increased payments to outstanding term notes in the current year, as well as issuance of TruPs in the prior year that did not recur in the current year. This decrease was partially offset by an increase in proceeds from lines of credit in the current year.
Non-GAAP Financial Measures
The Company uses adjusted earnings before taxes, interest, and depreciation and
amortization ("Adjusted EBITDA"), a non-GAAP financial measure as defined by the
SEC , to evaluate the Company's financial performance. This performance measure
is not defined by accounting principles generally accepted in the United States
and should be considered in addition to, and not in lieu of, GAAP financial
measures.
Adjusted EBITDA is defined as earnings before taxes, interest, and depreciation
and amortization, adjusted for specified items. The Company calculates Adjusted
EBITDA by removing the impact of specific items and adding back the amounts of
interest expense and depreciation and amortization to earnings before income
taxes. When calculating Adjusted EBITDA, the Company does not add back
depreciation expense for aircraft engines that are on lease, as the Company
believes this expense matches with the corresponding revenue earned on engine
leases. Depreciation expense for leased engines totaled $0.5 million and $70.4
thousand for the three months ended December 31, 2022 and 2021, respectively.
Management believes that Adjusted EBITDA is a useful measure of the Company's
performance because it provides investors additional information about the
Company's operations allowing better evaluation of underlying business
performance and better period-to-period comparability. Adjusted EBITDA is not
intended to replace or be an alternative to operating income (loss), the most
directly comparable amounts reported under GAAP.
The tables below provide a reconciliation of operating income (loss) to Adjusted
EBITDA for the three and nine months ended December 31, 2022 and 2021 (in
thousands):
Three months ended Nine months ended
12/31/2022 12/31/2021 12/31/2022 12/31/2021
Operating income $ 135 $ 25 $ 1,147 $ 724
Depreciation and amortization (excluding
leased engines depreciation) 560 372 1,810 956
Asset impairment, restructuring or
impairment charges 638 - 2,174 -
(Gain) Loss on disposition of assets - - (2) 3
Securities expenses 4 150 38 215
Adjusted EBITDA $ 1,337 $ 547 $ 5,167 $ 1,898
The asset impairment, restructuring or impairment charges for the three months
ended December 31, 2022 was a write-down of $0.6 million on the commercial jet
engines and parts segment's inventory.
The table below provides Adjusted EBITDA by segment for the three and nine
months ended
Three months ended Nine months ended
12/31/2022 12/31/2021 12/31/2022 12/31/2021
Overnight Air Cargo $ 1,031 $ 488 $ 3,331 $ 2,106
Ground Equipment Sales 1,128 1,544 3,252 3,074
Commercial Jet Engines and Parts 1,555 500 5,802 2,524
Corporate and Other (2,377) (1,985) (7,218) (5,806)
Adjusted EBITDA $ 1,337 $ 547 $ 5,167 $ 1,898 © Edgar Online, source
